Providing useful insights and making the complex world of energy more accessible, from an experienced industry professional. A service of GSW Strategy Group, LLC.

Wednesday, July 01, 2009

An Energy Bill for the Other 92%

Now that the Waxman-Markey Bill, the American Clean Energy and Security Act of 2009--all 1428 pages of it--has been narrowly passed by the House of Representatives, its fate rests in the hands of the US Senate, a body that has spurned a long series of cap & trade bills. The Senate's rules will require a much larger plurality just to bring such a bill to a vote, and that doesn't look easy, despite the belated resolution of the Minnesota race. The situation is further complicated by the existence of the Senate's own recently-drafted energy legislation, the American Clean Energy Leadership Act of 2009 (ACELA) from the Senate Energy and Natural Resources Committee chaired by Senator Bingaman (D-NM). Although lacking a counterpart to Waxman-Markey's cap & trade provisions, ACELA seems in many respects the better bill, promoting both renewable energy and the sources that supply 92.5% of our current energy needs and are likely to dominate our energy diet for many years: fossil fuels and nuclear power. This broader scope will be crucial, if our goals extend beyond reducing emissions to include shoring up energy security and fostering net job creation, not just "green jobs."

The full text of the Senate energy bill isn't yet available, nor has it been assigned an "S-number", by which it can be tracked. In reviewing the summary of ACELA on the committee website, I was struck by a marked contrast in its approach, compared to the House bill. ACELA is the product of a deliberately bi-partisan process, and the results of the horse-trading that went into it seem more cohesive and less jarring than the non-cap-and-trade portions of Waxman-Markey. ACELA's renewable electricity standard--which really ought to be a low-emission electricity standard--would start at 3% of electricity sales and ramp up to 15% by 2021. Importantly, the bill emphasizes energy efficiency, particularly for buildings, which would account for most of the greenhouse gas emissions reductions it would promote.

It also includes several provisions that echo themes I've advocated in a number of previous blog postings, such as updating the strategy for the Strategic Petroleum Reserve and opening up more of the Gulf of Mexico for offshore drilling. That would provide prompt access to identified hydrocarbon resources such as Destin Dome and take in a healthy portion of the currently-understood resource potential of those areas that had been kept off-limits by the expired offshore drilling moratoria. In addition, the bill would expand our knowledge of our offshore energy resources, conventional and renewable, through a detailed inventory including seismic exploration. If we're going to have a meaningful national debate concerning the expansion of access for oil & gas drilling, a better understanding of what's actually there is a critical prerequisite. If that seems contrary to the goal of reducing our emissions, consider that the main CO2 cuts from the hydrocarbon sector will result from reduced consumption, which would come at the expense of our enormous oil imports, not from suppressing the domestic production and access to Canadian production that underpin our energy security.

As for energy markets, unlike the heavy-handed regulations buried in the miscellaneous provisions of Waxman-Markey, ACELA would increase the transparency of oil & gas trading by expanding the Energy Information Agency's data and analytical coverage and bolstering industry reporting requirements. And in another provision, the bill would commission a long-overdue assessment of the critical connections between energy and water that I mentioned in last Tuesday's posting.

The bill also emphasizes job creation, both explicitly and implicitly. Its provisions for renewable energy, efficiency, and electricity transmission and grid improvement would promote the same kinds of green jobs claimed by the supporters of Waxman-Markey. At the same time, its oil & gas provisions would stimulate jobs of the kind highlighted by a new labor-industry partnership between the American Petroleum Institute and 15 labor unions. The US oil & gas industry employs 1.8 million people directly and another 4 million or so indirectly. Both figures could grow further with expanded access to US resources, and these jobs typically pay well over the national average.

The gaps and conflicts between the House and Senate bills look too big to overcome through reconciliation, which would in any case require the Senate first to pass either its own energy bill or a version of Waxman-Markey. I spent some time on the phone yesterday with contacts on Senate staffs to try to understand the likely process. Several paths appear possible, with the simplest involving the use of Rule 14 to bring Waxman-Markey directly to the Senate floor. The controversy around the bill and its narrow margin of victory in the House suggest a low likelihood of success for this route. Another avenue would involve moving the House bill into the Environment and Public Works Committee chaired by Senator Boxer (D-CA) and modifying it extensively. That would create the opportunity to include or substitute the measures in the ACELA bill for those in Waxman-Markey. However, that might still not avoid the fate of last year's Boxer-Warner-Lieberman cap & trade bill, which fell significantly short on the cloture vote required to bring it to a full vote of the Senate. The composition of the Senate has changed significantly since last June, yet it remains to be seen whether supporters of cap & trade have gained enough votes to carry the day.

My strong preference would be for the Senate to graft a clean version of cap & trade onto Senator Bingaman's energy bill, jettisoning the distortions that Waxman-Markey acquired in the process of lining up enough House votes to ensure passage. Some of those distortions neatly cleaved the natural business coalition against the bill by lavishing so many free emissions allowances on the utility sector, but in the process severely undermined the bill's potential for achieving prompt and significant emissions reductions. They effectively gave a temporary Get Out of Jail Free card to the sector of the economy that is responsible for the single largest share of our emissions, yet possesses the best options for substituting cleaner natural gas for its highest-emitting energy sources. The legislative fusion I'm suggesting could put a price and a cap on CO2 emissions, while ensuring adequate supplies of nuclear power and North American fossil fuels to manage the long-term transition to a lower-emitting economy.